www.wsj.com/articles/they-want-your-ira-1459985170

THE WALL STREET JOURNAL

They Want Your IRA

The White House pushes investors toward government accounts.

The Department of Labor says its so-called fiduciary rule will make financial advisers act in the best interests of clients. What Labor doesn’t say is that the rule carries such enormous potential legal liability and demands such a high standard of care that many advisers will shun non-affluent accounts. Middle-income investors may be forced to look elsewhere for financial advice even as Team Obama is enabling a raft of new government-run competitors for retirement savings. This is no coincidence.

Labor’s new rule will start biting in January as the President is leaving office. Under the rule, financial firms advising workers moving money out of company 401(k) plans into Individual Retirement Accounts will have to follow the new higher standards. But Labor has already proposed waivers from the federal Erisa law so new state-run retirement plans don’t have the same regulatory burden as private employers do.

This competitive advantage could be significant. Last month the board of California’s new “Secure Choice” retirement plan wrote to state legislators about their “exciting win” in Washington. They reported that employers enrolling workers in the new government-run plan “would have no liability or fiduciary duty for the plan.” Score! The California bureaucrats added that “we have been given the green light to auto-enroll workers into an Individual Retirement Account (IRA).”

Meanwhile, there are only losses for private competitors. The final rule Labor Secretary Tom Perez unveiled Wednesday is being marketed as less onerous than an earlier draft. Thus much of the financial industry is going to take a few weeks to decide on its response. But the main question is exactly how many billions of dollars in costs and lost opportunities will be visited upon investors. And how big the incentive will be to seek government options.

The White House claims it is solving a $17 billion problem for consumers who suffer from “conflicted advice,” but the investment advisory industry is already among the most regulated. The $17 billion figure was assembled from a variety of data sets, many of which weren’t measuring the alleged problem that Team Obama says it can solve, and some of which were generated by people who don’t endorse the White House analysis. In any case government-run plans will have their own conflicts of interest—politicians want the money—and will be expensive.

Mr. Perez claims his agency “worked closely” with the government’s actual IRA and investing experts at Treasury and the Securities and Exchange Commission. But when Wisconsin Sen. Ron Johnson’s Government Affairs Committee dug into the interagency email traffic, he found Labor telling an SEC staffer, “we have now gone far beyond the point where your input was helpful to me.” Senator Johnson’s report says emails show that Treasury officials also criticized Labor’s proposal.

Still, Labor’s one-two punch on private savings has something for everyone in the progressive coalition. Senator Elizabeth Warren can check off another item on her wish list of anti-business initiatives. Mr. Perez gets to burnish his credentials as a candidate for Vice President. And Mr. Obama gets to say he helped government control more of the private economy.

What average investors get out of this deal is much less certain. But judging by the pending California plan, one answer is: low returns. The initial investment allocation, even for young workers, is likely to be heavy on government bonds. Naturally.

California and other states are still working out the details of their new foray into investment management. Depending on how the plans are structured, they may be headed back to Washington to seek exemptions from the SEC. They won’t want to live with the rules that the commission places on private brokerages or mutual funds, but the SEC’s mandate is to protect investors, not politicians who want government to manage workers’ financial assets.

Charging young investors for the privilege of loaning money to government, while handicapping private competitors and denying choices to middle-income consumers. Another perfect progressive innovation.